W18377

MACY'S INC.: TURNAROUND STRATEGY IN CRISIS1

Won-Yong Oh, Ratchel Zeng, and Jessica Schuldhaus wrote this case solely to provide material for class discussion. The authors do
not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names
and other identifying information to protect confidentiality.

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Copyright © 2018, Ivey Business School Foundation Version: 2018-06-28

In March 2017, Jeff Gennette was elected chief executive officer (CEO) of Macy’s Inc. (Macy’s),
headquartered in Cincinnati, Ohio. When he succeeded Terry Lundgren, who had served as Macy’s CEO since
2003, Gennette shouldered the responsibility for turning Macy’s strategic and financial position around. At
the beginning of 2017, Macy’s had announced a plan to close approximately 100 stores over the year due to
poor sales, but this plan still did not solve all of the problems the company faced. Macy’s sales had fallen for
eight straight quarters, causing investors to fear that the company was continuing to lose market share.2 In
recent years, Macy’s had struggled against fierce competition due to the rise in online competition, an
increased number of off-price outlets, and the growth of fast-fashion retailers, in addition to traditional
department store competitors.3 Now, in June 2017, Gennette needed to increase sales, deal with competition,
and regain investor’s confidence. Could Macy’s meet these challenges and turn itself around?

COMPANY OVERVIEW

Macy’s Inc. was one of the world’s largest premier department stores, operating under the major nameplates
of “Macy’s,” Bloomingdale’s, and Bluemercury (see Exhibit 1).4 Functioning as a multi-channel retailer,
Macy’s sold a variety of merchandise in stores, online, and via mobile phone applications (apps). This
merchandise included a wide variety of consumer goods such as apparel and accessories (for men, women,
and children), home furnishings, cosmetics, jewellery, and footwear (see Exhibit 2).5 As of January 2017,
Macy’s had 829 stores in 45 states, Puerto Rico, and Guam. During the 2016 fiscal year, the corporation
recorded sales of US$25.778 billion,6 and employed approximately 140,000 people.

According to Macy’s annual report filed in January 2017, one of Macy’s focal areas was developing
omnichannel services and enhancing the consumer experience.7 The company was able to reach a large
consumer base with its three main retail stores—“Macy’s” (673 locations), Bloomingdale’s (55 locations),
and Bluemercury (101 locations)—but “Macy’s” was the company’s largest and most iconic brand. The
store had established itself not only as a retailer but also as a symbol of American culture, particularly
through its long-standing Thanksgiving Day parade and other holiday events.8 Bloomingdale’s was tailored
to more upscale consumers, and represented Macy’s only operations outside of the United States since two
stores were opened in the Middle East under special licensing agreements. Bluemercury was Macy’s newest
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brand addition, joining in 2015 through an acquisition. Expanding outside of the corporation’s traditional

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retail market, Bluemercury was a luxury beauty and spa retailer. Operating both within “Macy’s” stores
and in freestanding locations, Bluemercury was becoming Macy’s fastest-growing brand.9

With the competitive landscape of the retail industry quickly changing from traditional brick-and-mortar
stores to online and mobile app-focused and specialty retailers, Macy’s business model had been forced to
evolve. In 2009, Macy’s launched its My Macy’s, Omnichannel, and Magic Selling (M.O.M.) initiative in
order to react to the changing business environment.10 The My Macy’s aspect of the initiative focused on
having store locations carry specific merchandise and brands that would appeal to the needs and interests
of consumers in that geographic area. Omnichannel integration was implemented to integrate Macy’s
in-store and online platforms to maximize customer satisfaction and the speed with which web or mobile
orders could be fulfilled. The Magic Selling component consisted of training sales associates to engage
customers in the sales process to provide a more caring and satisfying customer experience.11

Company History

In 1858, Rowland Hussey Macy founded a small, upscale, dry goods store in downtown New York City
that grew to achieve approximately $85,000 in annual sales in its first year. By 1877, the store he founded,
which was named R.H. Macy & Co., had developed into a department store, occupying the ground floors
of 11 surrounding buildings. In 1902, the company had expanded its downtown store and gained attraction
from shoppers around the world as it opened the “World’s Largest Store,” with more than 1 million square
feet of retail space, in New York City’s Herald Square.12

By 1918, R.H. Macy & Co. was generating $36 million in annual net sales, but this was only the beginning
of the company’s growth. In 1922, it went public on the New York Stock Exchange and began its aggressive
growth. During the mid-1900s, the firm opened its own regional stores across the United States, acquiring
several other department store brands along the way, including Lasalle & Koch, Bamberger’s, and
O’Connor Moffatt & Company.13

However, in 1992, R.H. Macy & Co. filed for protection under Chapter 11 bankruptcy, making it a target
for a potential acquisition. Shortly after, in early 1994, the company was acquired by Federated Department
Stores Inc. (Federated). This acquisition made Federated the world’s largest premier department store
company, operating more than 400 stores in 37 states.14

Federated was formed in 1929 as a holding company for several large, family-owned department stores.
The main brands operating under Federated at the time of its inception were Abraham & Straus and F&R
Lazarus.15 In 1930, Bloomingdale’s also joined Federated, which had generated $112 million in sales during
its first year. 16 By the time R.H. Macy & Co. was acquired by Federated, Bloomingdale’s was at the
forefront of the retail industry and one of Federated’s strongest brands.17 Over the next 10 years, Federated
slowly restructured its operations to rename and open all new stores under two nameplates: “Macy’s” and
Bloomingdale’s. In 2007, Federated’s shareholders voted in favour of changing the entire corporation’s
name to Macy’s Inc.18

Starting in 2005, Macy’s started to revamp its customer loyalty program and advertisements in order to
further increase its presence in the retail marketplace. Macy’s started to issue customers branded credit
cards, launched its first national advertising campaign, and opened more “Macy’s” stores to create a
nationwide brand that shoppers could depend on for fashionable and affordable luxury.19 Due to these
efforts and other effective initiatives piloted by the company, Macy’s stock price steadily increased until
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the 2007/08 global financial crisis. During the financial crisis, the retail downturn severely affected Macy’s.
Its stock price was below $5.82 in November 2008—the lowest price since the early 1990s.20

After the financial crisis, Macy’s was able to recover and regain growth by increasing its online and social
media presence, with the company gaining over 1.2 million Facebook friends during 2010. By 2011, Macy’s
and Bloomingdale’s were offering international shipping to over 100 countries through online channels. In
the same year, to continue its evolution and growth, Macy’s announced a four-year, $400 million renovation
of its Herald Square flagship store in Manhattan, New York City. By 2013, Macy’s had recorded five
consecutive years of double-digit increases in its earning per share.21

Performance Decline

After consistently rising between 2009 and 2014, Macy’s stock took a sudden plummet in 2015.22 Analysts
had expected the company’s earnings per share (EPS) for the second quarter of 2015 to be $0.76 on sales
of $6.22 billion, but Macy’s only recorded $0.64 EPS with $6.1 billion in sales.23

This poor performance was blamed on unexpectedly weak tourist spending and a labour dispute at major
West Coast ports, which harmed operations. Nevertheless, investors were becoming wary of Macy’s future.
With the company’s stock dropping 26 per cent during the second quarter of 2015, it was obvious that
Macy’s management needed to implement new strategic initiatives to regain lost sales and improve
efficiency (see Exhibit 3).24

By early 2017, Macy’s stock price had not improved, and the company was still falling short of investors’
expectations in terms of its sales and earnings. During the first quarter of 2017, same-store sales dropped a
staggering 4.6 per cent, rather than the estimated 2.7 per cent drop, and adjusted EPS was only $0.24, rather
than the estimated $0.35. Further, Macy’s reported a 17 per cent drop in quarterly profits, caused by a
decline in sales and higher-than-expected inventory, which led to its stock dropping over 17 per cent in just
one day in early 2017.25

As competition within the department store industry became increasingly intense, Macy’s lowered stock
price and uncertain strategic future made it a candidate for a potential takeover. In early 2017, there were
several reports that Canadian retailer The Hudson’s Bay Company had approached Macy’s to discuss an
acquisition.26 Although The Hudson’s Bay Company never confirmed the rumours, Macy’s stock surged
over 6 per cent when news of the acquisition came out; however, talks soon broke down as Macy’s price
was evidently too steep for the Canadian company.27 With Macy’s 2017 sales and stock price expected to
continue dropping, it was time for the firm to review its strategic position.

Causes of Organizational Decline

In a changing retail industry environment, it became imperative for retailers to create strong customer
relationships to protect profits and guard against new competitors.28 Macy’s, whose brand was built on
being the ultimate department store, had started to lose some of that customer focus. One journalist
described a trip to Macy’s during the 2016 holiday season as a visit into a teenager’s bedroom, with items
strewn everywhere and no useful answers for consumers.29 Even in stores that were tidier, there was another
pressing problem: most brands carried by Macy’s could be found at other retailers, and Macy’s was losing
its ability to convince consumers that its shopping experience was better than that offered by emerging
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competitors. Traditional department stores started to have 40 per cent product overlap, and with many of

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these stores located within close proximity of one another, customers no longer had strong brand loyalty to
a single department store.30

To entice consumers into stores, Macy’s—and many other department stores—started offering heavy
discounts year-round.31 Once these expectations for discounts were established, consumers were less likely
to buy any item without a discount on the price tag.32 This habit caused department stores to settle for
smaller margins than in the past, causing operating profits to decline further. In addition, many luxury
brands chose to pull their merchandise out of department store settings due to such discounting, which they
feared could harm their luxury brand image; some elected to open their own stores instead. As a result,
Macy’s not only lost vendors but was faced with more competition from luxury retailers. Its high-end brand,
Bloomingdale’s, was especially affected by this competition.33

Furthermore, with the emergence and rapid growth of online and mobile shopping, foot traffic to retail
stores was falling drastically. Between 2009 and 2013, overall foot traffic to retail stores in the United States
fell from 35 billion to 17 billion, which caused a drastic change in the sales per square foot generated by
many retail locations.34 Macy’s had spent years building a real estate portfolio worth approximately $21
billion, but its enterprise value in 2017 was only valued at $17.3 billion.35 Macy’s could not afford to own
this amount of retail space unless it generated the expected returns, and major shareholders, such as activist
hedge fund Starboard Value, were becoming impatient with the retailer’s financial performance.36

COMPETITIVE CHALLENGES

While Macy’s had been an industry leader within the retail environment for years, the industry steadily
evolved to include online competitors such as Amazon.com, Inc. (Amazon), which offered both
convenience and flexibility, as well as off-price rivals like TJX Companies, Inc. (TJ Maxx), Burlington
Stores Inc. (Burlington) and Ross Stores, Inc. (Ross), which allowed consumers to get similar high-end
products at discounted prices. Other traditional brick-and-mortar stores, such as Nordstrom Inc. (Nordstrom)
and J. C. Penney Company Inc. (J. C. Penney), did not show promising financial outcomes, whereas
off-price retailer TJ Maxx continuously improved its operating performance (see Exhibit 4).

Online Competition

Millennials represented the largest demographic segment in U.S. history, and their impact on the economy was
significant.37 Their increased use of convenient technologies (i.e., those associated with computers and mobile
devices) was changing the way the retail industry operated and creating new pressures for traditional retailers.

Although a relative newcomer to the fashion retail industry, Amazon had swiftly risen to the top due to
these industry changes. The firm first entered the fashion industry in 2006 with its purchase of ShopBop,
and in 2009, it bought online shoe retailer Zappos. Following these acquisitions, Amazon increased its
investment in fashion, turning its focus to offering more high-end fashion labels, such as Stuart Weitzman
and Zac Posen, on its online portal.38

In 2012, Amazon’s CEO, Jeff Bezos, stated that his interest in expanding into the retail sector was driven
by the fact that the gross dollar profit per unit was much higher on fashion items than on many other items
sold by Amazon. The company’s methods seemed to be working, as the company’s apparel sales were
expected to grow 30 per cent (to $28 billion) in 2018, whereas Macy’s sales were expected to drop 4 per
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cent, to $22 billion. With this estimated growth, Amazon was expected to surpass Macy’s as the biggest
retail seller in the United States, and to capture 16.2 per cent of the retail market by 2021.39

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Amazon created a unique consumer experience that consistently enticed customers to choose its service
over other online platforms. For example, Amazon Prime, the company’s paid membership service, offered
convenient two-day shipping and access to streaming videos and music. The platform also had a large
breadth of customer product reviews and an excellent customer service rating, which helped attract more
customers. 40 Amazon’s most recent initiatives to gain market share in the fashion industry included
launching its own in-house clothing brands and sponsoring the first New York Men’s Fashion Week. These
moves continued to make the company an even bigger threat to Macy’s and other traditional retailers.41

In order to compete with online retailers like Amazon, Macy’s significantly increased its online presence,
shifting some of the resources previously dedicated to traditional stores to its online channels. By injecting
more capital into online commerce (or “e-commerce”), marketing data and analytics, and in-store pickups
for online orders, the company hoped to fuel growth in its online sectors.42 Macy’s had already seen some
positive growth from its online investments. During 2016, it saw double-digit annual revenue growth on
both Macys.com and Bloomingdales.com.43

Off-Price Rivals

Off-price retailers occupied the middle ground in the fashion industry between full-line stores (stores that
offered a variety of product lines, such as clothing, furniture, sporting goods, food, and electrical goods)
and discount stores, which offered a number of designer and recognized brands but at prices up to 70 per
cent less than those of traditional department stores.44 These stores were often located at off-mall sites (such
as strip malls), making them convenient for customers who needed to shop quickly. As traditional
department store sales continued to decrease, off-price stores were beginning to flourish.45

TJ Maxx, an off-price retailer that operated a number of other brands (e.g., Marshalls, HomeGoods,
HomeSense, and Winners), had created a global presence for its brand with stores in Australia, Austria,
Canada, Germany, Ireland, the Netherlands, Poland, and the United Kingdom, as well as the United States.46
TJ Maxx was able to sell brand-name items at discounted prices because it purchased items after the end of
each fashion season and its aggressive inventory management system allowed it to flip inventory quickly.
Based on this efficient system, TJ Maxx enjoyed significant growth. The company’s sales increased 6.2 per
cent in 2015 to reach $29.1 billion, compared to Macy’s $28.1 billion in the same year.47 In contrast to
many traditional retailers that had been forced to close stores, TJ Maxx was expanding. In 2016, it opened
37 new TJ Maxx stores and 32 new Marshalls stores in the United States. The company also planned to add
432 stores to its HomeGoods division, which comprised 568 stores as of 2017.48

Other off-price retailers were also trying to expand their operations. In 2017, Burlington, formerly known
as Burlington Coat Factory, a U.S. off-price department store retailer, introduced a long-term plan to reach
1,000 stores. The company opened 25 new stores in 2016 and added another 30 stores in 2017. As of 2017,
Ross Stores owned 1,338 Dress for Less locations and 192 dd’s Discounts stores. Ultimately, the company
planned to open 2,000 stores and 500 dd’s Discounts stores.49

TJ Maxx and other dominant off-price players kept their online presence to a minimum, as their physical
store locations were key to creating demand and keeping sales high. Following in TJ Maxx’s footsteps,
traditional department stores started to branch out and create their own off-price banners. In 2016,
Nordstrom opened 20 off-price stores under the brand Nordstrom Rack; these stores achieved an 8.2 per
cent increase in net sales between 2016 and 2017, leading the company to develop 215 Nordstrom Rack
locations in comparison to only 123 full-line locations.50
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In addition, Saks Fifth Avenue, which opened its first outlet-branded store, Saks Fifth Avenue OFF 5th, in
1992, continued to increase the number of these stores. In 2015, there were 91 Saks Fifth Avenue OFF 5th
stores, and the firm hoped to open 25 new locations across Canada starting in 2016.51

Capitalizing on this trend, Macy’s entered the off-price market in 2015 by opening six stores under the
nameplate Macy’s Backstage.52 This unique off-price brand operated on a “store-within-a-store” model,
meaning that these stores were located within already exiting “Macy’s” locations instead of opening new
standalone locations. To minimize sales cannibalizations, Macy’s Backstage even sold some merchandise
that full-line “Macy’s” locations did not carry.53 As of 2017, Macy’s Backstage had grown to 26 stores with
plans to open 19 more.54

Crisis of the Department Store Segment

Even as increasing competition from online retailers and off-price rivals threatened to sink traditional
department stores, rivalry among these department stores continued. With the department store industry
hitting new lows by 2016, Macy’s was not the only department store that needed to rethink its strategy.
Stock prices for major chain department stores fell 37 per cent during 2015, and many stores were left
empty, lowering productivity.55

Kohl’s, a department store with approximately 1,200 locations across the United States, reached a desperate
point when its stock fell 40 per cent from its high of $79.07 in mid-2015.56 Rumours circulated that Kohl’s
management was considering a sale to a private-equity firm as a strategic response. Another strategic
alternative involved adding more brands and expanding women’s cosmetics, accessories, and shoe
merchandise to increase sales to $21 billion by the end of 2017. 57 Like Macy’s, Kohl’s was using
omnichannel resources to offset the losses incurred by its traditional stores and improve its overall consumer
experience (e.g., the company was able to fill e-commerce deliveries within two days 90 per cent of the
time, and its app was downloaded over 13 million times during the second quarter of 2016).58

The Sears Holdings Corporation (Sears), the holding company headquartered in a suburb of Chicago,
Illinois, and the owner of retail store brands Sears and Kmart, experienced a 55 per cent drop in its stock
price over the course of 2016 before electing to take a different approach to dealing with the industry
downturn.59 After reporting a $748 million loss during the third quarter of 2016, Sears could not guarantee
that it would return to profitability.60 Therefore, in order to raise capital, the company decided to spin off
and sell its assets. Sears sold its Craftsman tool brand to Stanley Black & Decker for approximately $900
million at the beginning of 2017. Sears announced it would also be selling its Kenmore and DieHard brands
and closing 150 stores in order to cope with its ongoing losses.61

Similarly, after J. C. Penney fell short of its sales forecasts in 2016, the company revealed an optimistic
plan designed to increase its sales and profit margins.62 The three-year strategic plan focused on building
value within the company, creating differentiation through private brands, and offering home and beauty
products, as well as improving its overall omnichannel experience.63 Another focal area of the plan was
appliances. With the appliance market expected to grow 30 per cent between 2016 and 2019, J. C. Penney
hoped to bring appliances into 500 of its stores nationwide in order to capitalize on this opportunity.64
However, following in the footsteps of many other department stores, J. C. Penney appeared to be preparing
to downsize, raising the possibility of closing 700 stores in order to free up cash for investing in its most
profitable locations.65
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NEW STRATEGIC INITIATIVES

To deal with the increased competition and declining financial performance, Macy’s continued to revaluate
its strategic position. Returning Macy’s to its previous position would require some significant changes.

Cutting Costs and Closing Stores

In late 2016, Macy’s announced that it would be closing 100 full-line stores by early 2017. These stores
would be ones that the firm had identified as having a higher real estate value than retail store value.66 In
2016, Macy’s was able to generate $675 million in cash through such real estate transactions. One major
transaction, worth $250 million, was the sale of Macy’s flagship men’s store in Union Square, San
Francisco.67 This strategic action was designed to save the company approximately $550 million in costs
starting in 2017.68 However, even with the 100 closures planned for 2017, the market suggested that this
was not sufficient to turn the company’s losses around.69

In addition to generating revenue through real estate transactions, Macy’s restructuring would allow the
company to reduce payroll costs by simultaneously cutting approximately 10,000 jobs—some due to the
store closings and others due to a reduction in middle management intended to streamline the company’s
decision-making processes.70 Through these cost-cutting initiatives, Macy’s hoped it would be able to focus
on investing more heavily in its online operations and 150 best-performing stores.71

Reinventing the Brand

Cost-cutting measures alone were not enough: Gennette also needed a unique strategic plan that would
rejuvenate Macy’s image and entice consumers back to the department store and away from competitors.
Accordingly, in early 2017, Gennette announced several key strategic changes that would be rolled out in
all Macy’s stores.

The first initiative was the introduction of “Last Act,” a new section in Macy’s stores that would be
specifically for marked-down merchandise.72 This department would function as a designated clearance
section, with no additional price cuts or coupons permitted.73 Gennette hoped that this section would help
improve profits by allowing for the quick removal of old merchandise from the shelves while in-season
items could be showcased on the full-priced racks.74

The second change was a restructuring of Macy’s coupon system, aimed to benefit both customers and
vendors. Instead of discounting specific products, Macy’s planned to adopt a broader coupon system that
would enable customers to discount certain dollar amounts off the products of their choice.75 This type of
indirect discounting would allow Macy’s to offer value to its customers in a more creative way, and keep
vendors from complaining about the store constantly discounting its products.76

In keeping with its strategy to increase margins by lowering payroll, Macy’s third change was self-service
shoe departments. More merchandise would be presented on the floor, rather than in back rooms, allowing
customers to find products on their own.77 The idea was intended to save customers time when they did not
want to wait for a sales associate.78

Finally, Macy’s announced changes in merchandising. Department stores such as J. C. Penney and Kohl’s
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had beenreporting approximately 50 per cent of their sales coming from in-house private labels, compared
to Macy’s, which was only reporting 20 per cent from in-house private labels. These exclusive brands

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tended to carry higher margins, which would benefit Macy’s bottom line and give it more control over the
manufacturing and sourcing of the products. Along with the increase of such in-house brands, Macy’s also
planned to shift more focus to its beauty section. With Sephora and Ultra Beauty holding much of the
market share in this department, Macy’s had an opportunity to expand the number of its Bluemercury stores
and increase its private label beauty brand, Impulse.79

Expanding Global Reach

As the retail e-commerce sector grew rapidly, Macy’s looked to expand its online global presence as well.
With the Asia-Pacific region representing over 50 per cent of global retail sales growth, and with China
alone expected to account for more than 50 per cent of the world’s online retail market by 2019, there was
a large market for Macy’s to capture.80 Macy’s had been selling products to Chinese customers since 2011
through Macys.com, but in 2015, it expanded its e-commerce operation by starting a pilot with Alibaba’s
Tmall platform.81

The Tmall platform was Asia’s largest business-to-consumer platform that allowed businesses from around
the world to connect with the growing Chinese market without having to operate their own Chinese retail
sites.82 Through Tmall, Macy’s had managed to attract 300,000 customers since it launched, and Tmall
reported that Macy’s had become one of the site’s most popular sellers. With the success of this pilot,
Macy’s announced it would launch its own Chinese site in 2017 in order to further increase its global
e-commerce presence.83

WHAT NEXT?

Macy’s had been pursuing an aggressive strategy to optimize all facets of its business with hopes of
returning to its former profitability, but had its CEO addressed all of the company’s challenges in an optimal
way? Perhaps Macy’s multi-pronged strategy would effectively help reinvent the brand. However, the
department store industry was still experiencing an overall decline, and competition from online companies
and off-price retailers was severe. Could Macy’s overcome these obstacles and turn itself around?

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EXHIBIT 1: DETAILS OF MACY’S INC. STORES (2014–2016)

2016 2015 2014

Number of Stores
Macy’s 673 737 773
Bloomingdale’s 55 54 50
Bluemercury 101 77 –
Total 829 868 823
Store Count Activity
Store count at beginning of fiscal year 868 823 840
Stores opened 27 26 5
Bluemercury stores acquired – 62 –
Stores closed or consolidated into existing centres (66) (43) (22)
Store count at end of fiscal year 829 868 823

Source: Macy’s Inc., Annual Report 2016, 12, accessed May 13, 2018,
http://investors.macysinc.com/phoenix.zhtml?c=84477&p=irol-reportsannual.

EXHIBIT 2: MACY’S INC. SALES BY MERCHANDISE SEGMENT (2014–2016)

2016 (%) 2015 (%) 2014 (%)

Women’s accessories, intimate apparel, shoes, cosmetics, & fragrances 38 38 38
Women’s apparel 23 23 23
Men’s and children’s apparel 23 23 23
Home/Miscellaneous 16 16 16
Total 100 100 100

Source: Macy’s Inc., Annual Report 2016, 2, accessed May 13, 2018,
http://investors.macysinc.com/phoenix.zhtml?c=84477&p=irol-reportsannual.

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EXHIBIT 3: MACY’S INC. FINANCIAL DATA

2017 2016 2015 2014 2013

Per Share Data (in US$)
Cash flow 3.39 2.85 4.17 3.38 3.54
Earnings 1.99 3.22 4.22 3.86 3.24
Book value 12.46 12.80 15.71 14.77 14.07
Income Statement Summary (in US$ millions)
Revenue 25,778 27,079 28,105 27,931 27,686
Gross profit 10,157 10,583 11,242 11,206 11,148
Total operating expenses 8,842 8,544 8,442 8,528 8,487
Operating income 1,315 2,039 2,800 2,678 2,661
Interest expenses 384 363 395 390 437
Income before taxes 952 1,678 2,390 2,290 2,102
Net income 619 1,072 1,526 1,486 1,335
EBITDA 2,394 3,102 3,821 3,700 3,588
Balance Sheet Summary (in US$ millions)
Cash 1,297 1,109 2,246 2,273 1,836
Current assets 7,626 7,652 8,679 8,688 7,876
Total assets 19,851 20,576 21,461 21,634 20,991
Current liabilities 5,647 5,728 5,536 5,726 5,075
Non-current liabilities 9,881 10,598 16,083 15,385 14,940
Total liabilities 15,528 16,326 16,083 15,385 14,940
Long-term debt 6,535 6,966 7,265 6,728 6,806
Total stockholders’ equity 4,323 4,250 5,378 6,249 6,051
Financials and Key Ratio Analysis
Operating cash flow (in US$ millions) 1,801 1,984 2,709 2,549 2,261
Free cash flow (in US$ millions) 889 871 1,641 1,686 1,319
Current ratio 1.35 1.34 1.57 1.52 1.22
Quick ratio 0.32 0.29 0.48 0.47 0.43
Debt-to-equity ratio 1.52 1.65 1.35 1.08 1.12
Asset turnover 1.28 1.29 1.30 1.31 1.29
Gross margin (%) 39.4 39.08 40.00 40.12 40.27
Operating margin (%) 5.10 7.53 9.96 9.59 9.61
Return on assets (%) 3.06 5.10 7.08 6.97 6.20
Return on equity (%) 13.59 14.44 22.27 26.25 24.16
Return on invested capital (%) 7.48 10.58 13.59 13.15 12.08

Source:
The Trial Version Macy’s Inc., “Income Statement,” Morningstar Financials, accessed May 15, 2018,
http://financials.morningstar.com/income-statement/is.html?t=0P00000246&culture=en-US&platform=sal.

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 Page 11 9B18M096

EXHIBIT 4: MACY’S INC. AND PEER COMPANIES: FINANCIAL DATA (2017)

Macy’s Nordstrom J. C. Penney TJ Maxx

Income Statement Summary
(in US$ millions)
Revenue 25,778 14,757 12,547 33,184
Gross profit 10,157 5,317 4,476 9,618
Operating income 1,315 1,002 395 3,850
Net income 619 354 1 2,298
EBITDA 2,394 1,451 1,004 4,444
Balance Sheet Summary
(in US$ millions)
Cash 1,297 1,007 887 3,473
Total assets 19,851 7,858 9,314 12,884
Total liabilities 15,528 6,988 7,960 8,373
Long-term debt 6,535 2,73 4,339 2,228
Total stockholders’ equity 4,323 870 1,354 4,511
Financials and Key Ratio Analysis
Operating cash flow (in US$ millions) 1,801 1,648 334 3,602
Free cash flow (in US$ millions) 889 802 −93 2,577
Current ratio 1.35 1.07 1.69 1.63
Quick ratio 0.32 0.40 0.37 0.78
Debt-to-equity ratio 1.52 3.18 3.37 0.53
Gross margin (%) 39.4 36.03 35.7 29.0
Operating margin (%) 5.10 6.8 3.1 11.6

Source: Macy’s Inc., “Income Statement,” Morningstar Financials, accessed May 15, 2018,
http://financials.morningstar.com/income-statement/is.html?t=0P00000246&culture=en-US&platform=sal; Nordstrom Inc.,
“Income Statement,” Morningstar Financials, accessed May 13, 2018, http://financials.morningstar.com/income-
statement/is.html?t=0P000003XP&culture=en-US&platform=sal; JC Penney Co. Inc., “Income Statement,” Morningstar
Financials, accessed May 13, 2018, http://financials.morningstar.com/income-statement/is.html?t=0P00000319&culture=en-
US&platform=sal; TJX Companies Inc., “Income Statement,” Morningstar Financials, accessed May 13, 2018,
http://financials.morningstar.com/income-statement/is.html?t=TJX&region=usa&culture=en-US&platform=sal.

The Trial Version

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 Page 12 9B18M096

ENDNOTES
1
This case has been written on the basis of published sources only. Consequently, the interpretation and perspectives
presented in this case are not necessarily those of Macy’s Inc. or any of its employees.
2
Phil Wahba, “How Macy’s New CEO Plans to Stop the Bleeding,” Fortune, March 22, 2017, accessed May 10, 2017,
http://fortune.com/2017/03/22/macys-ceo-plan/.
3
Suzanne Kapner and Joann S. Lublin, “Macy’s Longtime Leader Terry Lundgren to Step Aside As CEO,” Wall Street Journal,
June 23, 2017, accessed May 10, 2017, www.wsj.com/articles/macys-ceo-lundgren-to-step-down-next-year-1466688061.
4
“About Us,” Macy’s Inc., accessed May 8, 2017, www.macysinc.com/about-us/.
5
Macy’s Inc., Annual Report 2016, 22, accessed May 13, 2018,
http://investors.macysinc.com/phoenix.zhtml?c=84477&p=irol-reportsannual.
6
All currency amounts are in US$ unless otherwise specified.
7
Annual Report 2016, op. cit., 3.
8
Brie Schwartz, “How to Do Thanksgiving in New York Right,” Amsterdam News, November 4, 2017, accessed February 20,
2018, http://amsterdamnews.com/news/2017/nov/04/how-do-thanksgiving-new-york-right/.
9
Annual Report 2016, op. cit., 109.
10
Ben Sillitoe, “Macy’s Stays ‘MOM’ as Sales Rise,” Essential Retail, March 3, 2014, accessed May 8, 2017,
www.essentialretail.com/in-store-ops/article/5314586a22b69-macys-stays-mom-as-sales-rise.
11
Walter Loeb, “Macy’s Loves MOM, and Consumers Do Too,” Forbes, February 27, 2013, accessed May 10, 2017,
www.forbes.com/sites/walterloeb/2013/02/27/macys-loves-mom-and-consumers-do-too/#12b65d502f5f.
12
“Company History,” Macy’s Inc., accessed May 10, 2017, https://macysinc.com/about-us/macysinc-
history/overview/default.aspx.
13
Ibid.
14
Ibid.
15
“Company History: 1900–1949,” Macy’s Inc., accessed May 10, 2017, https://macysinc.com/about-us/macysinc-
history/1900-1949/default.aspx.
16
Ibid.
17
“Bloomingdale’s: A History,” Macy’s Inc., accessed May 10, 2017, https://macysinc.com/about-us/macysinc-
history/bloomingdales-a-history/default.aspx.
18
“Company History: 2000–Present,” Macy’s Inc., accessed May 10, 2017, https://macysinc.com/about-us/macysinc-
history/2000-present/default.aspx.
19
Ibid.
20
“Macy’s (M) – 25 Year Stock Price History,” Macrotrends, accessed May 13, 2017,
www.macrotrends.net/stocks/charts/M/prices/macys-inc-stock-price-history.
21
Macy’s Inc., “Company History: 2000–Present,” op. cit.
22
“Macy’s (M),” Yahoo! Finance, accessed May 13, 2017, https://finance.yahoo.com/quote/M?p=M.
23
Alexander Coolidge, “Macy’s Shares Fall on Disappointing Earnings,” USA Today, August 12, 2015, accessed May 13,
2017, www.usatoday.com/story/money/business/2015/08/12/macys-q2-earnings/31523453/.
24
Ibid.
25
Lauren Thomas, “Macy’s Shares Plunge after Huge Earnings, Sales Miss; Shows Recovery a Long Way Off,” CNBC,
May 11, 2017, accessed May 13, 2017, www.cnbc.com/2017/05/11/macys-reports-first-quarter-earnings.html.
26
“Hudson’s Bay Co. Reported to Be in Bid for Macy’s,” CBC News, February 3, 2017, accessed May 13, 2017,
www.cbc.ca/beta/news/business/hudsons-bay-macys-bid-1.3965490.
27
Daphne Howland, “Report: Macy’s – Hudson’s Bay Merger Talk at Impasse,” RetailDIVE, March 6, 2017, accessed May 13,
2017, www.retaildive.com/news/report-macys-hudsons-bay-merger-talks-at-impasse/437449/.
28
John Maxwell and John Sviolka, “2016 Retail and Consumer Product Trends,” Strategy&, accessed May 13, 2017,
www.strategyand.pwc.com/trends/2016-retail-and-consumer-products-trends.
29
Jason Del Rey, “Amazon Didn’t Kill Macy’s, Macy’s Did,” Recode, January 12, 2017, accessed May 13, 2017,
www.recode.net/2017/1/12/14208262/amazon-didnt-kill-macys-macys-did.
30
Phil Wahba, “Can America’s Department Stores Survive?” Fortune, February 20, 2017, accessed May 13, 2017,
http://fortune.com/2017/02/21/department-stores-future-macys-sears/.
31
Ibid.
32
Abha Bhattarai, “The Unfortunate Thing about Macy’s: Just about Everything,” Washington Post, May 11, 2017, accessed
May 13, 2017, www.washingtonpost.com/news/business/wp/2017/05/11/the-unfortunate-thing-about-macys-just-about-
everything/?utm_term=.ebfbb94bee38.
33
Wahba, “Can America’s Department Stores Survive?” op. cit.
34
Maxwell and Sviolka, op. cit.
35
Matthew Johnston, “Macy’s Lure May Be Its $21B of Real Estate Assets,” Investopedia, August 11, 2016, accessed May 17,
2017, www.investopedia.com/news/macys-lure-may-be-its-21b-real-estate-assets/.
36
Daphne Howland, “Out of Patience, Starboard Value Exits Macy’s,” RetailDIVE, May 15, 2017, accessed May 17, 2017,
www.retaildive.com/news/out-of-patience-starboard-value-exits-macys/442696/.
37
Tom McGee, “How Millennials Are Changing Retail Patterns,” Forbes, January 23, 2017, accessed May 17, 2017,
The Trial Version
www.forbes.com/sites/tommcgee/2017/01/23/the-rise-of-the-millennial/#27ab3a245f74.

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 Page 13 9B18M096

38
Hayley Peterson, “An Unlikely Company Is Crushing America’s Biggest Clothing Stores,” Business Insider, September 25,
2016, accessed May 17, 2017, www.businessinsider.com/amazon-fashion-sales-are-booming-2016-9.
39
Hayley Peterson, “Amazon Is about to Become the Biggest Clothing Retailer in the US,” Business Insider, October 25, 2016,
accessed May 17, 2017, www.businessinsider.com/amazon-becomes-the-biggest-clothing-retailer-in-the-us-2016-10.
40
Ibid.
41
Hayley Peterson, “Amazon Is Getting Closer to Crushing America’s Biggest Clothing Stores,” Business Insider, January 14,
2017, accessed May 17, 2017, www.businessinsider.com/amazon-becomes-the-biggest-clothing-retailer-in-the-us-2017-1.
42
Ibid.
43
BI Intelligence, “Macy’s Restructuring to Focus on Digital,” Business Insider, January 9, 2017, accessed May 17, 2017,
www.businessinsider.com/macys-restructuring-to-focus-on-digital-2017-1.
44
Jack Kaikati, “Don’t Discount Off-Price Retailers,” Harvard Business Review, May 1985, accessed May 17, 2017,
https://hbr.org/1985/05/dont-discount-off-price-retailers.
45
Laura Klepacki, “Why Off-Price Retail Is Rising As Department Stores Are Sinking,” RetailDIVE, February 1, 2017, accessed
May 17, 2017, www.retaildive.com/news/why-off-price-retail-is-rising-as-department-stores-are-sinking/434454/.
46
The TJX Companies, Inc., 2017 Annual Report, 9, accessed January 3, 2018, http://www.tjx.com/files/pdf/annual_reports/tjx-
2017-annual-report.pdf.
47
Walter Loeb, “Why TJ Maxx Global Success Is the Envy of All Retailers,” Forbes, March 6, 2015, accessed May 17, 2017,
www.forbes.com/sites/walterloeb/2015/03/06/tjx-global-success-is-the-envy-of-retailers/#133d71257fc8.
48
Klepacki, op. cit.
49
Ibid.
50
Sharon Bailey, “A Look at Off-Price Retailers’ Store Expansion Plans,” Market Realist, January 3, 2017, accessed May 21,
2017, http://marketrealist.com/2017/01/assessing-off-price-retailers-store-expansion-plans/.
51
Hudson’s Bay Co., “Saks Fifth Avenue OFF 5TH Announces Entry into British Columbia and Manitoba; New Locations in
Quebec,” HBC, December 3, 2015, accessed May 21, 2017, http://investor.hbc.com/releasedetail.cfm?ReleaseID=945371.
52
Klepacki, op. cit.
53
Hayley Peterson, “Macy’s Shoppers Developed a Habit During the Recession – and It’s Haunting the Brand to This Day,”
Business Insider, November 15, 2016, accessed May 21, 2017, www.businessinsider.com/macys-is-adding-backstage-
outlets-to-its-stores-2016-11.
54
Daphne Howland, “Macy’s Plans Backstage Expansion amid Growing Pressure for Store Closures,” RetailDIVE, May 12,
2017, accessed May 21, 2017, www.retaildive.com/news/macys-plans-backstage-expansion-amid-growing-pressure-for-
store-closures/442632/.
55
Dow Jones Newswires, “Kohl’s Weighs Next Steps as Woes Mount,” Fox Business, January 11, 2016, accessed May 21,
2017, www.foxbusiness.com/features/2016/01/11/kohl-weighs-next-steps-as-woes-mount.html.
56
Ibid.
57
Ibid.
58
BI Intelligence, “Kohl’s Is Betting on This Strategy to Push Overall Growth,” Business Insider, August 13, 2016, accessed
May 21, 2017, www.businessinsider.com/kohls-is-betting-on-this-strategy-to-push-overall-growth-2016-8.
59
Lauren Coleman-Lochner and Rick Clough, “Sears to Sell Craftsman, Shut 150 Stores as Lampert Raises Cash,” Bloomberg
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brand-from-sears-for-about-900-million.
60
Nathan Bomey, “We Have Fallen Short: More Losses for Sears,” USA Today, December 8, 2016, accessed May 21, 2017,
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61
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62
Arriana McLymore, “JC Penney CEO Maps out Three-year Turnaround Plan,” CNBC, August 17, 2016, accessed May 24,
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63
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64
McLymore, op. cit.
65
Krystina Gustafson, “JC Penney Gears up for Closures as Department Stores Sales Continue to Deteriorate,” CNBC,
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66
Daphne Howland, “Macy’s to Shutter 100 Stores, Stock Soars,” RetailDIVE, August 11, 2016, accessed May 24, 2017,
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67
Lauren Gensler, “Macy’s Profit Drops 13% As Store Closures, Layoffs Take Their Toll,” Forbes, February 21, 2017, accessed May
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68
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69
Howland, “Out of Patience, Starboard Value Exits Macy’s,” op. cit.
70
Christopher Mele, “Macy’s Will Cut 10,000 Jobs after Poor Holiday Sales,” New York Times, January 4, 2017, accessed
May 27, 2017, www.nytimes.com/2017/01/04/business/macys-jobs-layoffs.html?_r=2; Gustafson, “Macy’s Posts
The Trial Version
Disappointing Holiday Sales”, op. cit.
71
Phil Wahba, “Macy’s Is Closing 63 Stores and Cutting 10,000 Jobs as Sales Plunge Again,” Fortune, January 4, 2017,
accessed May 27, 2017, http://fortune.com/2017/01/04/macys-holiday-season-closings/.

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 Page 14 9B18M096

72
Ibid.
73
Wahba, “How Macy’s New CEO Plans to Stop the Bleeding,” op. cit.
74
Krystina Gustafson, “Macy's Next CEO Wants to Make These 5 Big Changes at the Store,” CNBC, March 14, 2017,
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store.html.
75
Wahba, “How Macy’s New CEO Plans to Stop the Bleeding,” op. cit.
76
Gustafson, “Macy’s Next CEO Wants to Make These 5 Big Changes at the Store,” op. cit.
77
Wahba, “How Macy’s New CEO Plans to Stop the Bleeding,” op. cit.
78
Gustafson, “Macy’s Next CEO Wants to Make These 5 Big Changes at the Store,” op. cit.
79
Wahba, “How Macy’s New CEO Plans to Stop the Bleeding,” op. cit.
80
Deloitte, China E-Retail Market Report 2016, 2, accessed May 27, 2017,
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81
Matt Lindner, “Macy's Will Test Selling Online in China on Alibaba's Tmall.com,” Internet Retailer, August 12, 2016, accessed
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82
“Introduction,” Tmall.com, accessed May 27, 2017, http://about.tmall.com/.
83
Lindner, op. cit.

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